{ "docId": "019dd923-622c-750b-8b97-02143295259c", "docSlug": "abe250f84e95", "documentTitle": "NMC Health plc (NMC)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2020-02-10 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 3, "pageCount": 5, "prevPage": 2, "nextPage": 4, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 1, "notes": "This is a research note page from a short-seller report on NMC Health, focusing on potential financial irregularities and undisclosed related-party transactions.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b97-02143295259c/3", "deckHref": "/decks/019dd923-622c-750b-8b97-02143295259c", "deckJsonHref": "/decks/019dd923-622c-750b-8b97-02143295259c.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-02143295259c#slide-3", "components": [ { "bbox": null, "kind": "callout", "text": "The foregoing pattern of facts and events demonstrates to us that NMC insiders have a strong desire to obfuscate, coupled with a tenuous relationship with the truth.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b3-7229-beee-cd69573ff8ea", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.055, "w": 0.764, "x": 0.118, "y": 0.278 }, "kind": "paragraph", "text": "The foregoing pattern of facts and events demonstrates to us that NMC insiders have a strong desire to obfuscate, coupled with a tenuous relationship with the truth. For this reason, we believe it is possible that the undisclosed share pledges were used to secure undisclosed debt financing.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "75a1b0cc-a633-4c8e-b3a2-415ad251a2ec", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.175, "w": 0.764, "x": 0.118, "y": 0.433 }, "kind": "paragraph", "text": "Alternately, we believe that the share pledges might have enabled insiders to prop up NMC's margins by financing related parties, which in turn transacted uneconomically with NMC. At least one of the pledges \"relate[s] to credit facilities made available... to a company associated with Dr. B.R. Shetty\", which underscores our concern. We discussed one apparent undisclosed related party, Modular Concepts, at length in our first report. Below, we identify three additional potential related parties that the company does not disclose, each of which might be utilized in such a margin inflation arrangement. (The below list should not be interpreted as a complete and comprehensive list of potential related parties - there could be additional parties that we have not yet discovered.) To the extent this theory - that related parties borrow money in order to subsidize NMC's margins - is correct, the unraveling of the supporting web of debt would likely bring an end to the subsidies and cause reported profits to drop.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a9058a5c-96ab-4811-a90c-4517bda2249a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.085, "w": 0.764, "x": 0.118, "y": 0.171 }, "kind": "paragraph", "text": "Three days after our report, the FT reported that NMC had sought to raise €200 million in off-balance-sheet financing backed by shares in two of its existing UAE hospitals. According to the article, NMC used Blackstar Capital, which has previously arranged supply chain finance debt for the company, to engineer the \"highly unconventional\" deal. While NMC issued a denial in response to the article, it did not or could not point to any specific inaccuracies in the reporting.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b4b3fabe-19be-4221-b913-60c0944f2029", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.045, "w": 0.764, "x": 0.118, "y": 0.094 }, "kind": "paragraph", "text": "contradicting management's prior statements. Tellingly in our view, NMC investor relations representative Mr. Yahya ceased communicating with us after we began asking more detailed questions concerning the company's debt.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "da403202-015b-4569-9073-91cdba825987", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.025, "w": 0.764, "x": 0.118, "y": 0.713 }, "kind": "paragraph", "text": "NMC's catering vendors appears to be two such undisclosed related parties. BR Shetty's BRS Ventures purchased Royal Catering in 2015 and planned to expand into healthcare catering as of", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f7427595-f830-4895-b002-086243c63c49", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.764, "x": 0.118, "y": 0.805 }, "kind": "source-note", "text": "7 https://www.ft.com/content/c3469f08-2231-11ea-b8a1-584213ee7b2b\n8 https://cf-cdn.nmc.ae/Uploads/InvestorRelations/denial-of-press-article-20-dec-2019-7778fc83-f2a5-4048-98b8-38e358af4c1f.pdf\n9 https://cf-cdn.nmc.ae/Uploads/InvestorRelations/nmc-health-plc-statement-regarding-major-shareholdings-10-feb-2020-54c90b23-f3b3-4aee-a995-0ff1187967ea.pdf, p. 1\n10 Because we lack enough facts, we are unable to opine whether NMC was obligated to disclose these related party transactions.", "attrs": { "numbered": true }, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7e9902a9-7642-41bc-90f8-4cefbdca2177", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.025, "w": 0.764, "x": 0.118, "y": 0.396 }, "kind": "title", "text": "The Pledges Might be Loans to Related Parties that Subsidize NMC's Financials", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "07646e6f-3c05-4166-8e46-e1f476980138", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.015, "w": 0.52, "x": 0.118, "y": 0.679 }, "kind": "title", "text": "BRS Catering Services LLC and Royal Catering Services LLC", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bb7881a4-86c3-4689-a8ce-5d0a75fe7a28", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 3, "from": 3, "beatId": "17f209dd-e878-4dc2-ada9-02f6c78e7eab", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Agitate (Make it worse)", "beatSlug": "problem-agitate-solution-agitate-make-it-worse", "evidence": "The note agitates the problem by suggesting potential loans to related parties", "position": 1, "confidence": 0.8, "parentBeatName": "Development", "parentBeatSlug": "development" } ], "loops": [ { "to": 5, "from": 3, "name": "The Reveal", "slug": "05-the-reveal", "bestFor": "Product launches, strategic pivots, unexpected findings", "matchId": "b781b6fb-0424-4097-9a95-1a994c86f497", "evidence": "The note reveals a potential contradiction in NMC's financials", "position": 0, "objective": "Reveal potential financial irregularities", "structure": "Setup the Question -> Build Suspense -> The Big Reveal", "confidence": 0.7, "description": "Build mystery and anticipation, then deliver a surprising or powerful conclusion" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }